Oatly turnaround

Oatly experiences sharp growth pains. Is private equity thirsty enough to pounce?

Celebrity backed Oatly which IPO-ed for $17 a share in 2021 is now trading just above $2.

That hurts!

Although revenue grew marginally to $183m in Q3 2022, it was almost 15% lower than expected. Year on year net income fell to a larger loss of $212m from $60m.

The funky, barista loving plant milk brand, born in Sweden and sold worldwide is suffering from chronic indigestion.

Indigestion is tricky to diagnose. Most commonly it’s linked to over eating or eating too quickly. Has the launch of Oatgurts stumbled or the Mini-Barista or perhaps the Oatly ice cream?

From my perspective one problem is Oatly’s gross margin, which is below 20%. Oatly is not an everyday commodity brand, its consumer proposition is super-premium. It has also taken price increases. Typically non dairy milks are priced above dairy milks. 

I posit that distribution and logistics costs are a significant contributing factor. Oatly has very high SG&As which in 2021 ballooned to $354m from $168m in 2020. Oatly’s distribution costs are in SG&As. Unlike beverage companies with wider portfolios, it lacks critical mass especially as it rolls out in North America. 

Oatly plans to cut corporate headcount to ease the pain. The company has over 1900 staff. However, their scale has not been revealed.

Oatly’s cramps could be another’s solace.

Will Private Equity spy a bargain? Last year France’s PAI partners took a 61% stake in Tropicana juices from Pepsico. This included brands like Naked, KeVita, Izze, Dole, Copella, and Punica.

Photo: CNBC

Would there be synergies for Oatly under a bigger beverage portfolio? Certainly, shipping bulky liquids does not come cheap. Warehousing, truck utilisation and drop size would improve dramatically.

Oprah Winfrey and Natalie Portman, two of Outlay’s celebrity backers will be keeping their fingers crossed.